Exchanges have failed to win
market share of
derivatives trading
from the over-the-counter (OTC) markets over the
last three years, despite a surge in
derivatives activity.

The Bank of International
Settlements’ (BIS) latest quarterly
review conducted a survey in April
this year and polled 1,300 financial institutions in 52 countries.

It found the daily average turnover of foreign exchange and interest
rate derivatives traded worldwide
– on exchanges and OTC – surged
from $10.5 trillion in April 2013 to

$11.3 trillion in April 2016.

Despite this, the exchange-traded share remained relatively
unchanged at 46%, according to
BIS.

BIS also found for-eign exchange derivatives is‘overwhelmingly’ traded in OTCmarkets, with daily average turno-ver soaring to $3.4 trillion in Aprilthis year, compared to just $0.1trillion traded on exchanges in thesame period.

Though interest rate derivatives
are traded mainly on exchanges,
BIS said the OTC market share is
increasing.

In the 2000s, the proportion of
interest rate derivatives traded on-exchange declined from 80% to
66% in April this year.

The review explained innovations in the market “appear to
have made OTC more attractive,”
referencing exchange-like mechanisms introduced to trade OTC
instruments. n